Fed will have 10 days to begin muni purchases

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Speaker Nancy Pelosi, D-Calif., said at a Thursday news conference that additional funding will be needed in a fourth emergency spending bill.

The Federal Reserve will have up to 10 days after President Trump signs the $2 trillion Coronavirus emergency relief bill to start voluntary purchases of municipal securities through a new Economic Stabilization Fund.

Emily Brock, director of the federal liaison center for the Government Finance Officers Association, said that Federal Reserve officials are hoping to begin muni purchases before the 10 days fully elapse.

The House planned to send that legislation to the White House Friday.

Speaker Nancy Pelosi, D-Calif., pledged Thursday the massive spending bill would pass on a voice vote even though some objections were expected during a Friday morning vote.

The bill cleared the Senate late Wednesday night by 96-0 vote despite grousing earlier in the evening by a few Republican senators that the $600 weekly unemployment benefit for up to four months will be higher than regular wages of some of the people who will receive it.

Trump promised to sign the bill as soon as he receives it, setting into motion a cascade of federal payments to individual taxpayers, unemployed workers, local government, states, hospitals and health care systems as well as loans to businesses large and small.

Public finance groups on Thursday welcomed the emergency relief package as urgently needed funding.

In addition to allowing the Fed to directly purchase munis to stabilize the market, the legislation provides $150 billion for a Coronavirus Relief Fund; $130 billion for health care systems that includes a $127 billion for a Public Health and Social Services Emergency Fund; education emergency assistance totaling $30.9 billion; $25 billion for transit systems; $10 billion for airports and $5 billion for Community Development Block Grants.

The $150 billion Coronavirus Relief Fund administered by the Treasury will disperse $8 billion to tribal governments, $3 billion to territories and the District of Columbia and the remaining $139 billion to states and cities with populations over 500,000.

Any municipality with a population under 500,000 will have to make its request for money from the new Coronavirus Relief Fund to their state.

“Treasury did that as a way, in their words, to administratively be able to handle those transfers,” said Irma Esparza Diggs, director of federal advocacy for the National League of Cities.

“Those amounts will be deducted from the overall state total that will be based upon population,” said Diggs. “Every state will receive at least a minimum of $1.25 billion and the rest will be predicated on their state population. States below that will have to work with their states and their governors.”

Brock from GFOA said she was uncertain whether large cities that deal directly with Treasury or smaller municipalities that apply to their state will find it easier to access the money.

“It depends on how the application process and the effective implementation of it works, but we’re certainly watching it,” said Brock.

The NLC’s Diggs noted her organization asked for $150 billion just for local governments and instead is sharing that pot of money with the states.

“I understand the Treasury and White House position on the Coronavirus Relief Fund that this is not a stabilization fund and not meant to offset your losses in revenue,” Diggs said. “This is purely to cover coronavirus expenses.”

As a result, the NLC and other public finance groups are lobbying for additional funds.

Pelosi acknowledged at her Thursday news conference that additional funding will be needed in a fourth emergency spending bill.

“We’re still going to need to have more money for state and local governments and municipalities and the rest,” she said.

Although the House Democratic majority already has begun work on a fourth bill, Pelosi said, “We really should be operating at four corners, the House and Senate, Democrats and Republicans to find as much common ground as we can.”

Pelosi said that Federal Reserve Chairman Jerome Powell has advised her to “think big” because “the interest rates are as low as they ever will be.”

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Coronavirus Secondary bond market Federal Reserve State and local finance GFOA Washington DC